While many anticipated and predicted that hurricanes would bethe catastrophe story of 2007 — and indeed the hurricane seasonstill has 32 more days to go — the recent wildfires and subsequentdamage in Southern California have shown that catastrophes come inall different shapes and sizes, wreaking havoc on insurancecompanies as claims begin piling up.

According to a report from Guy Carpenter, the wildfires thatbegan on Oct. 21, 2007 have devastated parts of SouthernCalifornia, destroying more than 2,700 structures, including 2,013homes. The report stated that officials estimate up to 950,000people have been affected by the fires. San Diego has suffered theworst fire damage, with more than 1,500 homes destroyed. That'snearly three-quarters of the total number of homes destroyed by theblazes.

Three of the largest catastrophe modelers have released theirfigures for insured losses, and while they might not rival the $40+billion price tag of Hurricane Katrina, they are certainlysignificant. AIR Worldwide estimates that insured losses couldexceed $1.5 billion, while Risk Management Solutions (RMS) offereda wider margin of $900 million to $1.6 billion. Other media outletshave reported that the EQECAT modelers have reached similarconclusions, releasing estimates of between $1-$1.5 billion.

These are huge dollar figures, especially when compared torecent losses. Just two weeks ago, the Insurance Services Officereported that combined catastrophe claims for 2007's entire thirdquarter barely topped $1.13 billion. It seems certain that numberwill increase in the fourth quarter.

Additionally, RMS said that estimated insured losses from thesewildfires would rank them among the costliest in Californianhistory, behind the Oakland Hills fires in 1991 and the SouthernCalifornia fires in October 2003. They also reported that primarypersonal lines insurers and specialty writers for high-valueproperties are expected to incur most of the claims from thesewildfires.

“In recent years there has been significant development in thewildlands that border urban areas, as people seek to live in a morenatural environment,” said Don Windeler, director of modelmanagement for RMS, in a release. “As a result, more properties areat risk from brushfires, which pose a high hazard in theseareas.”

Despite the high dollar figures being floated, Fitch Ratingssaid in a release that insured losses are expected to be within thelevel of losses anticipated by carriers when pricing catastropherisk into premiums. Furthermore, they said that insurance companiesthat write the lines of business in California most affected by thewildfires are generally the larger, national carriers that, as agroup, have high insurer financial strength ratings. The insurancelines of business most affected, according to Fitch, will bepersonal lines, automobile, and commercial lines, with the latterseeing significant claims in business interruption.

The California Department of Insurance (CDI) issued an emergencydeclaration that allowed non-CDI licensed adjusters — typicallythose adjusters from outside the state — to legally work claims inCalifornia. However, their work must be under the active direction,control, charge, or management of a CDI-licensed insurer oradjuster.

“I am issuing a declaration that will expedite additionalinsurance adjusters to California to assist survivors of the firestorms with the prompt processing of insurance claims resultingfrom this catastrophic event,” said California's InsuranceCommissioner Steve Poizner, in a release. “For many, the first stepon the road to recovery is to cut through the red tape and havetheir losses documented and processed for a claim. We want toremove any unnecessary delays to the system and make sure we haveenough adjusters on the job.”

Many companies have already announced the dispatch ofcatastrophe teams. State Farm, the state's largest homeowners'insurer, reported that it had sent hundreds of adjusters to handlemore than 2,000 claims it had already received. Liberty Mutual alsoresponded by sending more than 75 adjusters and two mobilecatastrophe response units to the scene. Independent catastropheadjusters should expect to be utilized, as well. Farmers Insurance,meanwhile, has already reported more than 6,000 claims for its 400on-site catastrophe adjusters to handle.

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